Land Trust Blog
How to Pay for College
by Randy Hughes on July 18, 2010
How to Pay for College
(when you really do not want to)
(when you really do not want to)
When our two daughters were very young (four and eight) my wife and I realized that one day they would be going to college and would need a lot of money to do so. We began brainstorming as to how we would come up with the funds to put our children through four years of college. One option was to begin saving money in a separate account marked "college savings fund" and skimming off as much cash from our spendable income as life would allow. Since this did not sound like much fun we considered other alternatives but, none of the other savings/investment plans sounded good (primarily because it lowered our life-style capabilities NOW).
We finally decided to let two of our investment properties fund the kid's college education via future appreciation. Each of the two target properties were in their own separate land trusts (this is one of the many benefits to placing each property into it's own separate land trust....as we expouse constantly). We had each property appraised at current market value and then sold an option on each respective property for each kid (actually, for each kid's land trust).
So, when the dust settled we had the Trustees of our kid's land trusts hold options on land trusts that held title to investment real estate. Consequently, the trusts that held the options (for the benefit of the kids....who were each beneficiary of their own trust) on the trusts that owned the real estate captured the appreciation from that day forward until the kids turned college age. Once the girls turn college age and needed money for tuition we had the option of allowing the options to be exercized (and the kids selling of each property for cash) or buying the options back from the kids (at a profit to the kids).
What do you think we did?
We finally decided to let two of our investment properties fund the kid's college education via future appreciation. Each of the two target properties were in their own separate land trusts (this is one of the many benefits to placing each property into it's own separate land trust....as we expouse constantly). We had each property appraised at current market value and then sold an option on each respective property for each kid (actually, for each kid's land trust).
So, when the dust settled we had the Trustees of our kid's land trusts hold options on land trusts that held title to investment real estate. Consequently, the trusts that held the options (for the benefit of the kids....who were each beneficiary of their own trust) on the trusts that owned the real estate captured the appreciation from that day forward until the kids turned college age. Once the girls turn college age and needed money for tuition we had the option of allowing the options to be exercized (and the kids selling of each property for cash) or buying the options back from the kids (at a profit to the kids).
What do you think we did?
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Revocable vs. Irrevocable Land Trusts
by Randy Hughes on June 26, 2010
The way in which different types and classification of trusts keep intertwining is almost incestuous. By virtue of the power of the settlor (the creator of the trust) to modifiy any of its terms any time he/she wants, any trust that is revocable can be:
1. A grantor trust
2. A simple trust
3. A complex trust
4. A living trust
5. A family trust
6. A common law trust
7. A land trust
8. A business trust
9. A medicaid trust
10A secular trust
And, in fact, every kind of trust EXCEPT an irrevocable trust.
A Revocable trust could contain provisions which would seem ironclad on the surface, but when the trust itself can be modified, amended, or revoked, these conditions are illusory at best. Still, they may make persuasive reading when one is not knowledgeable about trusts. Remember, Revocable trusts are not effective as asset protection devices, since, under court order, they can be revoked and all assets can be exposed to the claims of creditors.
What a person trades off between revocable and irrevocable trusts are flexibility in return for protection. In either case, a trust is effective in providing privacy, but a revocable trust is merely a curtain while an irrevocable trust acts more like a wall for tax and asset protection purposes.
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Using a Limited Liability Company as the Beneficiary of a Land Trust
by Randy Hughes on May 30, 2010
Using a Limited Liability Company as the Beneficiary of a Land Trust
In previous postings on this blog I have discussed the problems with making an LLC the Trustee of your land trust. This posting will discuss the benefits, problems and pitfalls of using a Limited Liability Company as the Beneficiary.
In general, I like the idea of using an LLC, Personal Property Trust or Asset Protection trust as the beneficiary of a land trust. Not only are you creating another "level" for your adversary to penetrate but, you could be creating another legal jurisdiction for your adversary to to deal with (assuming the entity representing the beneficial interest has a situs in a state other than the situs of the land trust and the property held in the land trust).
Many people set up Limited Liability Companies for asset protection. In fact, a lot of attorneys will recommend that the real estate investor title their investments in an LLC for "asset protection" reasons. We have discussed previously why we do not use LLC's as the front line of defense (we do not title our real estate in the name of an LLC). However, clarification is important regarding the benefits of using an LLC as the beneficiary of a land trust.
The legal theory behind the asset protection benefit of an LLC is based upon protection of one member (of the LLC) from another. In other words, a charging order could be obtained by one member's creditor but the creditor could not force the sale of the LLC assets to satisfy the judgment. This theory assumes a multi-member LLC. Some courts have ruled that the creditor COULD force the liquidation of the LLC's assets when there was only a single-member in the LLC. So, the lesson here is to make sure that you have a two-member (or more) LLC. How can you do this and not involve strangers or others that you really do not want to business with? Simple, members of an LLC can be individuals as well as entities. Therefore, you could have you and your spouse as members or you and your spouses's personal property trust as members. Or, any combination of individuals and entities...just so long as you have at least two members!
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Be carefull when you are buying from a Land Trust
by Randy Hughes on May 15, 2010
Most of the time we are talking to you about putting your property into a Land Trust and all the benefits of doing so. But, what if you are buying property currently held in a Land Trust? Should you take extra precaution? The answer is YES! Before you take title (hopefully into your own Land Trustee's name....not your own personal name) from property currently held in a Land Trust, be sure to run a title search on all parties involved; Director, Trustee and Beneficiary. A title search on each of these individuals will assure you that there are no "clouds" on the title being conveyed to your Trustee. Also, be sure to read the title policy and make sure they do not issue excessive "exceptions" related to the Director, Trustee and Beneficiary...this would weaken the insurance coverage that you receive.
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Can You Avoid the Due-On-Sale Clause by Using a Land Trust?
by Randy Hughes on May 08, 2010
Much has been written about the due-on-sale clause and how to "get around" it when selling property. You will find the due-on-sale clause language in paragraph 17 of the standard FNMA and FHLBB mortgage and trust deed forms. Basically, the Clause will benefit the lender if a transfer of interest in the property takes place. The Lender would then be able to "call the loan due" and force the new owner to either pay off the Lender or refinance at a higher interest rate. As far back as 1980 a Virginia court found that transfer of Beneficial Shares of a Land Trust (from one owner to another) constituted a default under paragraph 17.
From a practical standpoint (in our current national financial condition), no lender would intentionally force a current loan into default because of the Due-on-Sale clause. However, as the economy recovers and interest rates begin to rise lenders may become more agreesive.
The real questions is, "How would a lender know that the beneficiary of a land trust sold his/her shares to someone else?" This type of transaction is not recorded at the local court house. And typically the lender that makes you the loan does not keep the loan "in house" for servicing. Your loan may actually be sold and transferred multiple times barring the lender's ability to track the checks making the loan payments.
The point here is that if you are trying avoid the due-on-sale clause you can probably accomplish it easier by using a land trust than by any other means.
From a practical standpoint (in our current national financial condition), no lender would intentionally force a current loan into default because of the Due-on-Sale clause. However, as the economy recovers and interest rates begin to rise lenders may become more agreesive.
The real questions is, "How would a lender know that the beneficiary of a land trust sold his/her shares to someone else?" This type of transaction is not recorded at the local court house. And typically the lender that makes you the loan does not keep the loan "in house" for servicing. Your loan may actually be sold and transferred multiple times barring the lender's ability to track the checks making the loan payments.
The point here is that if you are trying avoid the due-on-sale clause you can probably accomplish it easier by using a land trust than by any other means.
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